HomeMy Public PortalAboutResolution No. 497-18 07-09-2018RESOLUTION 497-18
A RESOLUTION ADOPTING THE FIXED ASSET AND INVENTORY POLICY AND
PROCEDURES FOR THE CITY OF RICHLAND HILLS, TEXAS; AND DECLARING AN
EFFECTIVE DATE.
WHEREAS, the City Manager and the Finance Director have prepared a the Fixed Asset and
Inventory Policy and Procedures document in an effort to improve the City's fixed assets and
inventory operations and systems, and
WHEREAS, it is in the City of Richland Hills best interest to adopt a resolution defining a set of
requirements related to City purchased fixed assets and inventory.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
RICHLAND HILLS, TEXAS:
Section 1. That all of the above premises are found to be true and correct and are incorporated
into the body of this Resolution in its entirety and presented on the Fixed Assets and Inventory
Policy and Procedures as attached.
Section 2. That the Fixed Assets and Inventory Policy and Procedures document, prepared and
submitted by the City Staff be approved.
Section 3. That this resolution will become effective immediately following its final passage and
approval.
PASSED AND APPROVED on this 9th day of July, 2018.
ATTEST:
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City Secreta Cathy Bour
Mayor Edward Lopez
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Fixed Asset and Inventory
Policy and Procedures
CITY OF RICHLAND HILLS, TEXAS
FIXED ASSET AND INVENTORY POLICY AND PROCEDURES
Table of Contents
A. INTRODUCTION .. .. .. .. .. . .. .. .. . .. .. .. .. . .. .. . .. .. .. .. .. .. .. .. .. .. . .. .. .. .. .. .. .. . .. .. .. .. 4
Policy Statement
Purpose
Responsibilities
B. PROCEDURES.............................................................................. 5
1. ACQUISITIONS.......................................................................... 5
Overview
Purchases
Approvals
Trade-Ins
I mprovements/Renovations/U pg rad es
Donations (Gifts) given to the City
Capital Leases
Employee Owned Property Brought on City Premises
Vendor Owned Equipment
2. CAPITALIZATION........................................................................ 7
Overview
Capitalization Conditions
Capitalization Thresholds
Accounting for Capitalization
Capitalization Treatment of Repairs
Construction In Progress (CIP)
3. DISPOSALS, TRANSFERS AND IMPAIRMENTS............................... 8
Overview
Disposals
Scrapped Assets
Sale of Asset
Stolen Assets
Asset Trade-in
Donation of Assets
Transfers
Impairments
Disposal of Non-Fixed Assets
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City of Richland Hills , Texas
Table of Contents
4. DEPRECIATION ........................................................................... 11
Overview
Method and Useful life
Other Depreciation Considerations
5. INVENTORY............................................................................... 12
Overview
Inventory Frequency and Schedule
Inventory Methodology
Inventory of Assets Purchased with Grant Funds
Disposals and Missing Assets
Reconciliation and Adjustments
Inventory Results and Reports
Preparation for Inventory
6. VEHICLE/EQUIPMENT REPLACEMENT PROCEDURES .................... 14
Vehicle/Equipment Replacement Funds
Equipment Replacement/Trade-In
7. ASSET RECORDS....................................................................... 15
Overview
Upkeep and Maintenance
Record Information
8. CONTROL & COMPLIANCE ........................................................... 16
DEFINITIONS . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . .. . . . . . . . .. . .. . . . . . . . . . . . . . . . . . . . ............... 17
APPENDIX..................................................................................... 20
Fixed Asset Add ition Form
Fixed Asset Transfer Form
Fixed AsseUNon-Fixed Asset Disposal Form
Fixed Asset Gifts/Donations
Fixed Asset Impairment Form
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A . INTRODUCTION
POLICY STATEMENT
The City of Richland Hills (the "City ") requires that amounts expensed for fixed assets (in
excess of certain thresholds and whether purchased , constructed , gifted/donated , or leased)
be capitalized , depreciated and periodically reviewed for impairment or possible write-off in
accordance with Generally Accepted Accounting Principles (GAAP), federal and state laws ,
City policies and procedures , and private granting agencies regulations .
All fixed assets are owned or accountable by the City and not a specific individual ,
department or other operating unit. Compliance with the policies and procedures defined
herein is mandatory for all City staff working for or on behalf of the City.
PURPOSE OF POLICY
The City of Richland Hills Fixed Assets and Inventory policy and procedures document has
been developed to provide the information necessary to :
1. Properly identify fixed assets ;
2 . Ensure that the City 's fixed assets are properly acquired , safeguarded , controlled ,
recorded and disposed of;
3. Ensure adherence with Generally Accepted Accounting Principles (GAAP),
applicable federal and state laws , City policies and procedures , and private granting
agencies regulations ;
4 . Promote consistent accounting treatment across the City ;
5. Ensure the operating results of City units/departments are properly recorded and
reported ; and
6. Improved equipment utilization through control and identification of property that is
not needed or underutilized .
RESPONSIBILITIES
Finance Department is responsible for the general oversight of fixed assets and the
establishment and monitoring of proper internal controls , including maintaining the
procedure document and answeri ng questions regarding the document and as follows :
1. Ensuring the integrity of all fixed asset data including recording all transactions
relating to acquisitions , disposals , transfers , write-downs , write-ups , Construction in
Process (CIP), depreciation and physical inventory .
2 . Providing training to all City personnel involved in the acquisition , disposal and
transfer of fixed assets .
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3. Reconciling book to physical inventory variances , and propose adjustments as
needed.
4 . Ensuring fixed · assets are properly identified, tagged and that authorization is
obtained for all transfers, trade-ins and disposals.
5. Ensuring compliance with GAAP , federal and state laws and City policies and
procedures .
Department Heads are responsible for ensuring that equipment belonging to their
department is adequately controlled and safeguarded . Department Heads are also
responsible for designating an individual for maintaining fixed asset records , conducting
an annual physical inventory , and communicating with Finance personnel to ensure
accurate data .
Departments are responsible for conducting annual physical inventory and provide
results for updating the official fixed asset records. Departments will report to the
Finance Department fixed asset transfers from one department to another department ,
relocation to a different building , or property disposal as a result of trade-in , theft , or
other insurable loss. Department will ensure that the City's assets and inventory not
currently in use are stored in areas where access is limited to authorized personnel only .
B. PROCEDURES
1. ACQUISITIONS
Overview
Acquisition , within the context of this document, encompasses the various methods
by which the City obtains , receives , and becomes accountable for property. The
most common method of acquisition of property is through purchases . Other
methods include donations (or gifts) and leases.
When an acquisition meets the requirements of a capital asset , as defined in this
procedure document, a Fixed Asset Addition Worksheet must be completed. All
accompanying invoices, purchase requisitions and/or purchase orders must be
attached to the Fixed Asset Addition Worksheet in order for that asset to be added
into the Fixed Asset module .
Approvals
• Purchases are verified by the Department Head prior to a purchase order being
issued .
All fixed asset approvals will be conditioned upon compliance with general operating
and grant budget limits, as well as sound investment decision making .
A purchase requisit ion and purchase order must be completed and approved for all
fixed asset purchases .
Trade-Ins -Since the equipment being traded-in is permanently leaving the City , this is
actually a twofold transaction : an acquisition and a disposal. (Section 3 -Disposals ,
Transfers and Impairments).
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Improvements/Renovations/Upgrades
Defined as any addition made to, or change made in, an asset , other than routine
maintenance, that prolongs its life or increases its efficiency . These upgrades will be
entered into the fixed asset system as a component of the original asset so that the
upgrade can be readily identifiable as a component of the original asset.
Donations (Gifts) given to the City
Any donated fixed asset will be reported to the Finance Department if it has an
estimated fair market value of $5 ,000 or more individually or as an operating unit. The
Department receiving the donation has the responsibility of reporting full description of
the property , date received, number of donated items, and the name of the person
making the donation on the Fixed Assets Gifts/Donation Form.
The Finance Department determines the fair value of the property and will acknowledge
the receipt of the item(s), in writing , to the donor. These donated assets will be
capitalized and recorded as a fixed asset in the General Ledger and Fixed Asset
modules . Fair market value may be determined by :
Written independent third party appraisal obtained by the Finance Department ;
• A qualified expert on staff if he or she is considered to hold special knowledge or
expertise related to the property being donated;
Documentation obtained from a qualified outside source such as "blue book " or a
knowledgeable dealer; or
Identifying what it would cost the City to purchase the donated property outright
from a vendor.
Capital Leases
• Leases of equipment or personal property are approved, executed and kept on
file .
• All capital leases shall be accounted for as expenses in the period in which the
obligation to make a lease payment is incurred.
• All capital leases shall be treated as fixed asset additions to the City . As such ,
upon the inception of a capital lease , the Finance Department shall record a fixed
asset and a liability under the terms of the lease, based on the net present value
of the minimum lease payments (or the fair market value of the leased asset , if it
is less than the present value of the lease payments).
Periodic lease payments shall be allocated between a reduction in the lease
obligation and interest expense .
• The fixed asset recorded under a capital lease shall be depreciated over the term
of the lease , using the straight-line method of depreciation.
Employee Owned Property Brought on City Premises
Employee owned equipment, furniture or fixtures brought onto City premises
should be reported to their Department Head in writing . The list of employee
owned items brought onto City premises should be approved by the Department
Head and kept on the employee's personnel file .
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The City will not be responsible for any employee owned property used or
maintained on City premises nor will City insurance coverage be placed on such
property .
Vendor Owned Equipment
Any equipment furnished by a vendor and utilized by a City will be the
responsibility of the vendor and not included in the City 's asset records ,
insurance coverage , or inventories .
2. CAPITALIZATION
Overview
• Capitalized assets include land , buildings , building improvements and renovations ,
furniture , fixtures , machinery , equipment , vehicles , software (including internally
developed software), and capital leases (See Capitalization Conditions and
Thresholds).
All assets are capitalized in the year of construction , being at least 90% complete
and/or placed into service.
Capitalization Conditions
A fixed asset is capitalized only if it meets all of the following conditions:
Owned or considered owned (e.g . capital leases) by the City ;
Held for operations (not resale);
Useful life that exceeds one year; and
Meets the capitalization threshold.
Capitalization Thresholds
The capitalization threshold is $5 ,000 for individual assets or operating unit , including
freight , installation costs , etc . and $5 ,000 in aggregate for renovations . All asset
purchases that do not meet these criteria will be expensed in the year of purchase as
either a small equipment purchase or maintenance and repair expense .
Accounting for City Assets
Capital assets will be recorded in the City's financial records on a cost basis . This basis
will include all freight and delivery charges , installation , setup costs, trade-in amounts ,
and any other costs of acquisition. Interest costs may or may not be capitalized as part
of the construction of the fixed assets . Cash discounts taken will be recorded as a
reduction of the cost. Gifts and donated items are valued at an estimated fair market
value .
Capitalization Treatment of Repairs
• Major Repairs -Repair expenditures that increase the capacity , life or operating
efficiency of an asset shall also be capitalized . Examples of repair expenditures that
shall be capitalized are as follows :
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• Replacing a roof, and in so doing , substantially prolonging the building 's life .
• Reconditioning air conditioning units in such a way that extends their useful life .
• Replacing a van's engine that was substantially worn out.
• Minor Repairs -Minor repair expenditures are usually treated as current year
operating expenses even though they may have the characteristics of capital
expenditures . Expenditures incurred in connection with maintaining the existing City
facilities in good working order shall be expensed as a current year repair.
Examples of repair expenditures that shall be expensed during the current fiscal year are
as follows :
• Replacing broken glass .
Painting , carpeting , and decorating of an office .
Temporary repairs that last less than one year.
Construction In Progress (CIP)
Upon completion of construction and/or placement into service , the asset shall be
removed from the GIP account and entered into the Fixed Asset module under the
appropriate classification . Any expenses incurred thereafter will be posted directly to the
asset.
3. DISPOSALS, TRANSFERS AND IMPAIRMENTS
Overview
When an asset has been scrapped , sold , stolen , traded -in , donated , or transferred ,
its value has been permanently impaired, or for any other reason the asset is no
longer in service ; any remaining value of the asset , net of accumulated depreciation ,
must be written off or written down to its net realizable value. If written off, this
involves removing both the asset and associated accumulated depreciation from the
Fixed Asset and General Ledger modules , and recognizing a gain or loss , if any , for
the difference in the general ledger.
All fixed assets that have been disposed , traded , donated or sold will also be
disposed from the City's fixed asset tracking system.
A Fixed Asset/ Non -Fixed Asset Disposal Form is to be completed by the
Department Head whenever a fixed or non-fixed asset is no longer required by the
department for any reason and they wish to dispose of the asset. This form must be
approved by the appropriate Department Head.
Proceeds from the sale/disposal of fixed assets will be recorded in the operating
fund .
Disposals
Once a capital asset is transferred to Surplus , the Department Head will make the
decision on the most cost effective and beneficial disposition of the asset and complete
the Fixed Asset/Non-Fixed Asset Disposal Form accordingly and with the City Manager's
approval.
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Scrapped Assets
Any asset that becomes obsolete, worn beyond reasonable repair or no longer has a
department use will be reported to the Finance department on the Fixed Asset/Non-
Fixed Asset Disposal Form. This asset shall be fully described noting serial number,
barcode number (if applicable), and perceived condition .
The Fixed Asset/Non-Fixed Asset Disposal Form should note whether the item will
be placed in Surplus Inventory or disposed .
Finance will remove the item from Fixed Asset module and General Ledger, once the
asset is disposed .
Sale of Asset
The buyer of City furniture and equipment , vehicles , buildings , or land must be given
an executed Bill of Sale signed by the Department Head or his/her designee. This
Bill of Sale must state that the sale is "final " and the property is sold in "as is"
condition .
After completion of the sale , the Fixed Asset/Non-Fixed Asset Disposal Form will be
submitted to Finance to update the accumulated depreciation to the date of the sale
(if applicable).
Once depreciation is updated , the cash or goods received are debited at fair market
value , accumulated depreciation of the asset sold is debited for its net book value ,
and the depreciable asset is credited for its historical cost. Thus , the gain or loss on
the transaction is simply the difference between the fair market value of the asset
received and the book value of the asset given up .
All proceeds from the sale of City furniture and equipment , vehicles , buildings , or
land will be recorded in the operating fund .
Stolen Assets
The Police Department shall be immediately contacted when a City employee
becomes aware of missing and/or possibly stolen City property.
A report shall be filed with the Police Department , with a copy being sent to the
Finance Department for insurance purposes , describing the item missing (including
serial numbers , fixed asset numbers and barcode , when available) and give any
pertinent facts surrounding its disappearance . An additional copy of the police report
should be attached to the Fixed Asset/Non -Fixed Assets Disposal Form that is sent
to Finance for asset tracking purposes .
The Police Department will determine the proper course of action and will notify any
outside authorities if deemed appropriate .
Asset Trade-in
When the disposal represents a trade-in on a similar asset, the newly acquired asset
shall be recorded at the net book value of the trade-in asset plus any additional cash
paid or financed via a lease agreement.
• In no instance shall total cost exceed the fair market value of the new asset.
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Donation of Assets
The City may choose to donate surplus items (with City Council approval for
donations with a net book value over $1 ,000) to appropriate and qualified
organ izations ; such as , religious , charitable , educational , scientific , literary , etc .
organizations. If the items were originally funded by a federal or state grant, there
may be restrictions to donate property . This sort of disposal is handled by the
Finance department, who will complete the Fixed Asset/Non-Fixed Asset Disposal
Form . The asset will be removed from the fixed asset records and the net book value
of the donated asset will transferred to the Contributions account.
Asset Transfers
The Finance department secures the Department Head approval in making request
to relocate City equipment from its original location and must complete the Fixed
Asset Transfer Form indicating the new location (building , department, office) and
effective date of transfer.
The transfer should be approved by both the sending department and receiving
department.
• A copy of the Fixed Asset Transfer Form is completed by the Finance department so
that the transfer from the original department to the receiving department can be
recorded in the Fixed Asset module.
The effective date of the transfer is the actual date of the physical relocation of the
asset and the date in which accountability for the asset will change. The receiving
Department Head wil l assume full respons ibility of its care and oversight on the
effective date of the transfer.
Impairments
• An asset may be impaired (the unexpected and s ignificant decline in an assets
service utility , e .g . expected usable capacity at acquisition) due to events or change
in circumstances , e.g . suffer physical damage , obsolescence or change in
technology , change in regulatory or environmental factors .
The Fixed Asset Impairment Form must be completed to report the impairment so
that the asset can be revalued in the Fixed Asset module to reflect the decline .
If an asset has been permanently impaired , the asset must be written down to its
estimated remaining value or, in some cases , written off entirely . This write -down or
write-off is accounted for in the same manner described in the Scrapped Assets
section of this document.
Disposal of Non-Fixed Assets
The person in charge of each facility/department will be responsible for the
identification of non -fixed asset property that is no longer needed , obsolete , and/or
beyond repair .
Non-fixed assets are basically handled the same as fixed assets as far as processing
them for disposal through auction .
• Complete a Non -Fixed Asset Disposal Form , obtain adequate approvals , and send it
to the Finance department for processing . The actual physical disposal or transfer of
assets should not occur without a form. Assets cannot be disposed or removed
without a properly executed form authorized and signed by the Department Head .
All proceeds from the sale of non -fixed assets will be recorded in the operating fund.
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4. DEPRECIATION
Overview
The use of depreciation affects the City 's financial statements . The recording of
depreciation will cause an expense to be recognized ; thereby lowering the stated
change in net assets on the Statement of Activities , while the net value of the asset
will decline on the City's Balance Sheet.
Depreciation is a non-cash expense , therefore ; it will not directly affect the City 's
cash flow , as both are accounting representations of expenses attributable to a given
period .
Method and Useful life
The cost of all capitalized assets will be depreciated on a monthly basis over the
estimated useful life using a generally accepted depreciation method .
• For financial reporting purposes , the following useful lives and depreciation methods
shall be used for the follow ing asset categories :
Asset Category Useful Life Depreciation Method :
Machinery , Equipment and Furniture 3-20 Straight Line
Improvements other than Buildings 3-30 Years Straight Line
Buildings 20-40 Years Straight Line
Water and Sewer System Infrastructure 5-40 Years Straight Line
Street and Storm Drainage Infrastructure 5-40 Years Straight Line
Since land and land improvements do not have a determinable life , no
depreciation will be taken.
Art and collectables are not depreciated or recorded as fixed assets . They are
expensed in the period of acqu isition .
Other Depreciation Considerations
When the cost of improvements is substantial , or when there is a change in the
estimated useful life of an asset , depreciation charges for future periods shall be
revised on the basis of the new book value . In cases that include a change in useful
life , the revision shall be measured prospectively and accounted for in current and
future periods.
Costs accumulated in the Construction in Progress account shall not be depreciated
since the asset has not yet been placed in service.
Fully depreciated assets shall remain on the asset records with its related
accumulated depreciation as long as the asset is still being used in City operations .
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5. INVENTORY
Overview
Physical inventories shall be conducted to verify the accuracy of the City 's property
records in the Fixed Assets module , as well as the existence and activity status of
the assets .
• Results of performed inventories will provide an overall assessment of the
effectiveness of property management and the level of compliance with established
policies and procedures , as well as federal and state , and private granting agencies
regulations .
Inventory Frequency and Schedule
Property inventories will be conducted at least once a year.
Developing and managing the schedule for physical inventories is the responsibility
of each Department Head .
Inventory Methodology
Physical inventories are primarily done on a 100%, wall-to-wall basis , and regardless
of remaining net book value . Reconciliation is mandatory and the results should be
included in the periodic reports for inventory.
T he Department Head and/or designee will conduct the physical i nventories .
Verification of the existence and accountability of the property is done through
physical verification of specific attributes .
Attributes verified and reconciled to the property record include (at a minimum):
■ Asset tag number (if available)
• Description
• Manufacturer
• Model Number
• Serial Number
• Veh icle Identification Number (VIN)
■ Location
■ Use status
• Condition
• Date of Service/Acquisition
• Asset useful life
■ Source of Funds Used to Purchase the Asset
Preliminary results are reported to the Finance department within 3-5 business days
after the completion of the initial sweep through the department or designated area .
Through this report , the Finance department will be informed of any discrepancies
and the explanation for such discrepancies .
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Inventory of Assets Purchased with Grant Funds
In the year an asset is placed in service, the Finance department will perform an
initial inventory . The inventory will be identified and recorded in the Fixed Assets
module .
Each year, a current listing of grant purchased assets will be sent to the Finance
department for use verification and asset information updates. The listing will be
amended and approved by the Department Head and returned to the Finance
department.
At least once a year a complete equipment physical inventory of grant purchased
fixed assets will be performed . The asset record will be updated in the Fixed Asset
module each year to ensure compliance with federal property management and
grant requirements .
Consult with the Finance Department prior to making any decision concerning
placing an asset purchased with grant funds in Surplus Inventory .
Disposals and Missing Assets
The Department Head/designee is responsible for reporting all disposals, transfers ,
sales or discards of purchased equipment, using the required Fixed Asset Form. The
form should be completed with appropriate departmental approvals and any
supporting sales documents, and forwarded to the Finance department.
If an asset is not located during the physical inventory, the Department Head will
make every attempt to locate the equipment. If the item is thought to be stolen , the
Police Department will be notified immediately (See Stolen Assets section).
The department will be given a period of 45 days to locate the items in question. If
after 45 days the equipment cannot be located , a Fixed Asset Disposal Form will be
completed as noted above. In addition, a report may be submitted to the Finance
Director who will work with the appropriate administrator to resolve the issue .
If the items in question are still missing after 90 days, the asset will be removed from
the Fixed Asset module .
The Department Head is responsible for notifying the sponsoring agency of any
equipment loss or disposal of grant funded assets.
Reconciliation and Adjustments
The results of each inventory must be reconciled , posted to the respective property
record and reported to the inventoried department.
Within 5 business days after the completion of the initial sweep through a department
or designated area , preliminary inventory results are provided by the Department
Head. This hand-off initiates a 30-day reconciliation period during which a resolution
will need to be provided for all discrepancies on the listing .
The Department Head is responsible for providing final resolution to each noted
discrepancy. Every effort must be made to locate items not found during the initial
sweep.
Items found during the physical inventory period that were not on record are
considered to be potential additions or adjustments and must be resolved during the
30 day reconciliation period as well.
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For items not found or accounted for during the reconciliation period , the Department
Head must provide a written confirmation to the Finance department of the efforts
made to locate the assets and the potential circumstances leading to the items being
misplaced , lost or stolen.
Assets disposed of as a result of not being found during physical inventories , and
subsequently found , will be reviewed on a case by case basis for potential
reactivation (See Disposals and Missing Assets section).
Inventory Results and Reports
Results of a physical inventory are posted to the inventory/fixed assets module and
reports are generated within 30 days after the completion of the reconciliation period.
After analyzing the results for each inventory, corrective actions for property
management practices may apply and the Department Head, along with the Finance
Director, will work with each area to correct these problems.
Content and format of periodic reports may vary , depending on the needs of the
receiving party .
Preparation for Inventory
As with most tasks , preparation is a key factor to the success of the inventory
process . If departments follow a few routine steps , the inventory process should
move very smoothly with minimal errors. To prepare , department designee to
conduct the annual inventory should follow the checklist below (these tasks should
be performed as a matter of routine , not just prior to the inventory):
o Identify all assets purchased or donated.
o Identify non-City owned assets (including employee-owned assets) so they
will not be counted .
o Ensure all assets requiring additional identification (e .g .: donation , grant
funded asset , etc.) have been tagged and/or identified appropriately.
o Update Finance department continually throughout the year as needed when
disposals , transfers or impairments occur using the required Fixed Asset
Form .
Performing these tasks on a regular basis and ensuring they are completed prior to
the inventory will directly impact how simple or difficult the inventory reconciliation
will be.
6. VEHICLE/EQUIPMENT REPLACEMENT PROCEDURES
V~hicle/Equipment Replacement
A vehicle/equipment eplacement schedule provides a systematic approach to the
replacement of City-owned vehicles and equipment by funding their estimated
replacement costs over their expected service lives. This process smoothes the effect of
large non-annual capital purchases and saves taxpayer money , as the City does not
have to finance these large purchases through the use of bonds or capital leases, thus
eliminating the need to pay interest.
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A replacement schedule will be established per department calling for the replacement
based on anticipated life span for each vehicle or major piece of equipment. Vehicles
and equipment are assessed as they reach that life span , and their service life may be
extended , delaying replacement , if they are still mechanically sound. Replacement costs
are estimated , using an inflationary and interest figure , as it related to the purchase price
paid for the vehicle or equipment that is to be replaced .
Equipment Replacement/Trade-in
When equipment items are returned to the vendor for repair or replacement ,
departments must handle such returns in accordance with the City 's
Procurement/Purchasing Policy and Procedures. When an equipment item is traded in ,
the department must notify the Finance department on a Disposal Form if either the cost
of the old item or the cost of the new item , including trade-in allowance , meets the fixed
asset threshold of $5 ,000 .
7. ASSET RECORDS
Overview
The relationship between the Fixed Asset module and the Financial Accounting
component is one of detail to control. Summary asset values are recorded in the General
Ledger control accounts while supporting detail is maintained within Fixed Assets. Within
the Fixed Asset module , asset records are created and transactions processed to reflect
asset activity and data are collected for accounting . An accounting interface generates
journal entry transactions which then update the General Ledger.
Upkeep and Maintenance
The Finance Department is responsible for the upkeep and maintenance of the Fixed
Asset module .
Record Information
The Fixed Asset module contains all capitalized assets of the City along with
depreciation records. In this module each recorded asset may contain the following
information :
• Asset number
• Primary Tag (if component or attachment)
• Asset Description
• Asset Type
• Cost
• Net book value
• Method of acquisition
• Date acquired or placed in service
• Make/Model/Manufacturer
• Serial numberNehicle Identification number
• Barcode number
• Last Inventory Date
• Condition
• Disposal method and date
• Responsible Department
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• Invoice and purchase order number
• Physical location
• Custodian
• Funding Source
• Fund
• Asset Account
• Accumulated Depreciation Account
• Adjusted Cost
• Accumulated depreciation
8. CONTROLS & COMPLIANCE
All City operations are subject to review and audit by the Finance department as well as
external auditors . Periodic audits will be performed at random on existing City 's policies
and procedures . Any deficiencies in regard to the set policy and procedures will be
reported directly to the Director of Finance and the Department Head in the form of a
memo outlining the deficiencies. This does not relieve the Department Head of the
responsibility of checking the continuous performance of their designated facilities and
operations .
It is the responsibility of the Department Head to take action to correct deficiencies, and to
monitor employee processes to ensure that the procedures outlined are conformed to and
administered properly.
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DEFINITIONS
Acquisition -Encompasses the various methods by which the City obtains , receives and
becomes accountable for property .
Acquisition Cost -The purchase price or fair market value of an asset plus any ancillary costs
necessary to place the asset in its intended location and condition for use .
Ancillary Costs -Costs necessary to place a capital asset into use , such as freight and
installation costs. These costs are included in the cost of the asset.
Asset Tag -A decal affixed to moveable assets which carry a control number used to identify
the asset.
Attachment -An asset that is directly related to and a part of another asset. Attachments share
the same asset number (or tag) with the original asset.
Balance Sheet -A statement of financial position at a specific point in time .
Capital Asset -A permanent owned item .
Capital Lease -Leases that meet at least one of the following criteria : Lease transfers
ownership of the property to lessee by end of lease term ; lease contains a bargain purchase
option; lease term is equal to 75% or more of the estimated economic life of the leased property ;
or the present value of the minimum lease payment at the inception of the lease is 90% or more
of the fair market value of the leased property .
Capitalization -Expenditure that is treated as an asset instead of an expense.
Capitalization Threshold -Amount above which an item is capitalized and below which an
item is expensed .
Cash Flow -The balance of the amounts of cash being received and paid by a business during
a defined period of time , sometimes tied to a specific project.
Component -An asset that is related to but not part of another asset. Components are stand-
alone assets and have their own individual asset number (or tag).
Construction in Progress (CIP) -Account used to hold costs of assets which are being built or
modified , but which are not yet complete (per GAAP , CIP is not a depreciable asset).
Depreciation -Expense in a systematic and rational manner to those periods expected to
benefit from the use of the asset. Depreciation is not a matter of valuation but a means of cost
allocation.
Disposal -Process of getting rid of something .
Equipment -City equipment is defined as non-consumable , moveable items with a useful life of
one year or more . Equipment items are used in normal departmental operations and are not for
resale purposes .
17
Financial Statements -An overview of a business' financial condition in both short and long
term .
Fixed Asset -Any property or equipment not for resale , that has an initial value of $5 ,000 or
more individually or as an operating unit. Fixed assets are also referred to as capital assets ,
capital expenditures , facilities and equipment, and property, plant and equipment. The
classification of fixed assets is as follows :
♦ Land -All expenditures related to the initial purchase of land (No dollar limit), including
any due diligence cost such as commissions , legal fees , and escrow fees. Per GAAP ,
land is not a depreciable asset.
♦ Buildings -All expenditures related to the initial purchase or initial construction of a
building, including costs to raze any existing structures on the land in preparation for
construction (No dollar limit). The cost of buildings would include the acquisition cost
plus any costs to prepare the building for occupancy. These costs would include contract
amount , attorney and architect fees, commissions , escrow fees, governmental impact
fees and permits, insurance and any other costs to prepare the building for occupancy.
Interest costs may or may not be capitalized as part of the construction of the fixed
assets . Also included in this class are the building portions of real property purchases
with existing structures. Donated labor or services are not capitalized.
♦ Building improvements -are renovations , additions , or repairs to physical structures
in excess of $50 ,000 in aggregate that enhance or improve and extend the life of the
original asset. General repairs and maintenance are not capitalized , such as cleaning ,
painting , carpet , asbestos abatement , etc .
♦ Equipment and Furnishings -The initial purchase cost of equipment and furniture
that equals or exceeds $5,000 individually or as an operating unit. The cost would
include any delivery and installation costs as well. Sales tax, however, is not included .
♦ Vehicles -The initial purchase cost of a vehicle that equals or exceeds $5,000
individually , including sales tax , title , tags, and fees .
♦ Software -All expenditures related to the initial implementation of software (excluding
equipment or hardware) that costs $5 ,000 or more and will be used for more than one
year. These costs include consultant , initial user license fees, and training costs;
however, software renewal licenses, upgrades to the original software, annual
maintenance fees , and database subscription licenses are not capitalized .
Gains and Losses -is the difference between its fair market value and net book value
(historical cost less accumulated depreciation).
Generally Accepted Accounting Principles (GAAP) -Accounting principles recognized in the
United States of America and sanctioned by recognized authoritative bodies such as the
Financial Accounting Standards Board (FASS).
Historical Cost -The amount paid , or liability incurred , by an entity to acquire an asset and
make it ready to render the services for which it was acquired .
Impairment -A significant , unexpected decline in the service utility of a capital asset.
Improvement -An addition made to, or change made in , an asset , other than maintenance , that
prolongs its life or increases its efficiency .
18
Initial Value -The actual full cost to place an asset in service , which can include freight costs ,
installation costs , attorney fees , architect fees , governmental impact fees , permits , insurance
and any other costs to prepare the asset for use.
Maintenance and repair -costs that do not significantly improve the economy or efficiency of a
capital asset's expected useful life .
Moveable Asset -Assets that are not part of the supporting structure of a building and that
meet specific criteria for capital assets .
Non-Fixed Asset -is basically all property and equipment that does not meet the capitalization
threshold and conditions.
Net Book Value -Cost of an asset less accumulated depreciation (also known as Book Value).
Operating Lease -All leases that do not meet the criteria of a Capital Lease .
Personal Property -is tangible property other than land .
Renovation -Any repair expenditure that increases the capacity or operation efficiency of an
asset.
Straight-line Depreciation -Depreciation method that divides the assets ' capitalized value by
the number of years of service life. Straight-line depreciation results in the same depreciation
amount each month over the life of the asset.
Surplus Inventory -Assets in good shape but not needed any more by a department and held
to be used elsewhere or sold .
Upgrade -Improve the quality of an asset.
Useful Life -The period of time during which an asset is physically performing its function .
Write-down -A reduction in the estimated value of an asset.
Write-up -An increase in the estimated value of an asset.
Write-off/disposal -is a reduction in the estimated value of an asset , bringing the net book
value to zero .
19
CITY OF RICHLAND HILLS
FIXED ASSET ADDITION FORM
ASSET TYPE:
____ LAND
BUILDING ----
----EQUIPMENT
____ IMPROVEMENTS
STREETS ----
WATER SYSTEM ----
____ SEWER SYSTEM
CIP ----
CIP-WS ----
____ CIP-SS
ASSET#
TAG#
DEPARTMENT
GLACCOUNT
FUND
DESCRIPTION
CIP (Y/N) CIPAMOUNT
GRANT (Y/N) GRANT AMOUNT
PO# PO DATE
CHECK# CHECK DATE
LOCATION
VENDOR ____________ COST __________ _
________________ MAKE __________ _
MODEL ---------------------------
SER I AL# ----------CONDITION (NEW/USED) ______ _
COMMENTS
DEPRECIATION METHOD RATE # OF YEARS ----------------
FIXED ASSET ACCT# _________ _
ACCUM DEPR ACCT# _________ _
DEPR EXP ACCT# -----------
ENTERED DATE ___ _
INITIALS
CITY OF RICHLAND HILLS
FIXED ASSET TRANSFER FORM
ASSET TYPE :
LAND CIP --------
BUILDING CIP-WS --------
----EQUIPMENT ____ CIP-SS
IMPROVEMENTS ----____ OTHER (Non -FA )
STREETS ----
____ WATERSYSTEM
____ SEWER SYSTEM
ASSET# ___________ DATE ______ _
DEPARTMENT TAG# --------
MAKE ------------
MODEL -----------
SER I AL# _________ _
DESCR IPTION
TRANSFER TO DEPARTMENT --------
RE AS ON FOR TRANSFER
ASSET COST ________ _
BOOK VALUE SALVAGE VALUE -----------------
L -T -D DEPRECIATION ------
Effective on the date of transfer all maintenance and repair and fuel charges will be
expensed to the receiving department
AUTHORIZED BY TRANSFERRING DEPART MENT: -------------
DIRECTOR SIGNATURE
AUTHORIZED BY RECEIVING DEPARTMENT : ______________ _
DIRECTOR SIGNATURE
ENTERED DATE ___ _
INITIALS
CITY OF RICHLAND HILLS
FIXED ASSET/Non-FIXED ASSET
DISPOSAL FORM
ASSET TYPE:
LAND ----
BUILDING ----
----EQUIPMENT
____ IMPROVEMENTS
STREETS ----
WATER SYSTEM ----
____ SEWER SYSTEM
CIP ----
____ CIP-WS
____ CIP-SS
____ OTHER (Non-FA)
ASSET# ___________ DATE ______ _
DEPARTMENT TAG
MAKE ------------
MODEL __________ _
SERIAL# ----------
DES CR IP TIO N
PURCHASE DATE -------
PURCHASE PRICE ______ _
DELETION DATE --------
METHOD OF DELETION
______ SOLD/AUCTION
______ SCRAPPED
______ DISCARDED
--------
STOLEN ------
LOST ------
OTHER ------------
Assets out of service or in storage cannot be deleted until one of the above events
occurs.
PRICE RECEIVED FOR ASSET IF SOLD OR SCRAPPED _______ _
REASON FOR DISPOSAL
DIRECTOR SIGNATURE ----------------
ENTERED DATE ___ _
INITIALS
CITY OF RICHLAND HILLS
FIXED ASSET GIFTS/DONATIONS FORM
ASSET TYPE:
____ LAND
BUILDING ----
----EQUIPMENT
____ IMPROVEMENTS
STREETS ----
____ WATER SYSTEM
SEWER SYSTEM ----
CIP ----
____ CIP-WS
CIP-SS ----
DEPARTMENT __________ _
DATE --------------
LO CAT 1O N -------------
DESCRIPTION
DONATED BY VALUE ----------------------
----------------MAKE __________ _
________________ MODEL __________ _
CONDITION (NEW/USED) _______ SERIAL# _________ _
COMMENTS
DIRECTOR SIGNATURE _____________ _
DEPRECIATION METHOD RA TE # OF YEARS ----------------
FIXED ASSET ACCT# _________ _
ACCUM DEPR ACCT# ----------
DE PR EXP ACCT# __________ _
ENTERED DATE ___ _
INITIALS
CITY OF RICHLAND HILLS
FIXED ASSET IMPAIRMENT FORM
ASSET TYPE:
____ LAND
BUILDING ----
EQUIPMENT ----
IMPROVEMENTS ----
STREETS ----
____ WATERSYSTEM
____ SEWER SYSTEM
CIP ----
CIP-WS ----
____ CIP-SS
____ OTHER (Non-FA)
ASSET# ___________ DATE ______ _
DEPARTMENT TAG --------
MAKE -----------
MODEL __________ _
SERIAL# _________ _
DESCRIPTION
PURCHASE DATE -------
PURCHASE PRICE ______ _
IMPAIRMENT DATE _____ _
NET ASSET VALUE -------
REASON FOR IMPAIRMENT
DIRECTOR SIGNATURE ----------------
ENTERED DATE ----
INITIALS